Accumulate Bank of Baroda - Dolat Capital

Bank of Baroda's core operating performance during Q4FY13 was impacted considerably by the high provisions (NPL related as well as investment depreciation), while the tax write-back of Rs. 4.8bn aided the bank achieve Rs. 10.5bn net profit.

Asset quality showed some signs of stabilizing with fresh NPL formations of Rs. 21bn, almost flat QoQ. While NPL recoveries and upgrades did not show any meaningful improvement, the bank made significant NPL write-off of Rs. 12.2bn. Domestic slippages at Rs. 17.2bn were marginally lower on QoQ basis while in the international book, slippages increased significantly to Rs. 8.8bn. The management while maintaining their cautious stance on asset quality has guided for current levels of slippages in the domestic loan book for the next two quarters and lower slippages in the international loan book.

The bank restructured loans of Rs. 26bn while benefiting from a reduction of Rs. 30.5bn in the restructured loan portfolio (as per RBI guidelines). Total restructured loans stood at Rs. 226bn (domestic Rs. 186bn and international Rs. 40bn) forming 6.9% of total loan book.

- NIM at 2.51% declined 14bps QoQ largely as loan yields reduced and the cost of deposits in the domestic business increased QoQ.

- Going forward, the bank intends to grow at around 2% above industry average rates, both on loans and deposits and maintain its asset quality. The bank's asset quality has remained better than most of its PSB peers and we believe that despite the headwinds that the bank is likely to face over the next couple of quarters, BOB's delinquency ratio should remain lower than most of its peers. Maintain our Accumulate rating with target price of Rs. 780, based on PBR of 0.9x on FY14 BVPS forecasts.

Source : Equity Bulls

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